BlackBerry reported better-than-expected third quarter earnings on Wednesday, driven by strong demand for its cybersecurity software, but its forecasts for the current quarter fell short of analyst estimates.
The company posted adjusted earnings per share of 1 cent, beating expectations of a 3 cent loss. Revenue rose nearly 3% to $175 million, just below the $179 million analysts predicted.
Cybersecurity Strength Overshadowed By Weak Outlook
BlackBerry’s cybersecurity business has remained resilient even as some tech firms trim headcount and clamp down on software spending. Sales in its cybersecurity unit rose 9% in the latest quarter.
However, the company expects a sequential revenue decline in the fourth quarter. It forecasts sales of $150 million to $170 million, compared to the $185.7 million Wall Street anticipated.
“While we are pleased with beats for both revenue and earnings, the market is more forward looking which explains the initial negative stock reaction to light Q4 guide,” said TD Securities analyst Daniel Chan.
BlackBerry’s share price fell over 6% in after-hours trading following the results.
Restructuring Efforts Ramp Up
The earnings release comes as BlackBerry moves forward with plans to split its business into two public companies – one focused on cybersecurity and the other on connected vehicles.
Earlier this month, BlackBerry announced the $600 million sale of the majority of its legacy patents primarily related to mobile devices, messaging and wireless networking.
It also recently named cybersecurity executive John Giamatteo as its new CEO to helm the cybersecurity business after the breakup. Founder and current CEO John Chen will lead the IoT business.
“The leadership change comes at an ideal time as BlackBerry looks to split up the business and double down on software offerings,” said Morningstar analyst Mark Cash.
Ongoing Shift To Software Revenue
BlackBerry has been attempting to pivot from hardware to security software and connected car systems, with varying degrees of success.
BlackBerry Revenue Breakdown
| Segment | Q3 2024 Revenue | Change YOY |
|---|---|---|
| Cyber Security | $120M | +9% |
| IoT (QNX) | $51M | -5% |
| Licensing | $4M | -75% |
The majority of BlackBerry’s revenue now comes from cybersecurity and QNX software for connected vehicles.
Its legacy licensing business – once the company’s core during its mobile device heyday – only contributed $4 million last quarter as outdated hardware deals wind down.
What’s Next For BlackBerry?
With the company split on the horizon in late 2023 or early 2024, attention will turn to the strategy and performance of the two standalone businesses.
The cybersecurity unit seems well-positioned to capitalize on strong enterprise demand, while the IoT business aims to maintain QNX’s leadership in automotive software.
However, both face intense competition from much larger rivals. Giamatteo said his focus will be on “running a tight ship” and improving operating margins through the transition and beyond.
Most analysts believe reasonable valuations and healthy balance sheets should make the sum of BlackBerry’s parts attractive to investors over the long term. But forecast weakness suggests near term turbulence still lies ahead.
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